Leaders in Supply Chain and Logistics

#69: Alex Capri Senior Fellow and Lecturer at National University of Singapore, Business School

February 06, 2020 Radu Palamariu Season 1 Episode 69
Leaders in Supply Chain and Logistics
#69: Alex Capri Senior Fellow and Lecturer at National University of Singapore, Business School
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Leaders in Supply Chain and Logistics
#69: Alex Capri Senior Fellow and Lecturer at National University of Singapore, Business School
Feb 06, 2020 Season 1 Episode 69
Radu Palamariu

Alex Capri is a Senior Fellow and Lecturer at the National University of Singapore Business School and Lecturer at Lee Kuan Yew School of Public Policy.

Alex was a former Partner and Regional Leader of KPMG’s International Trade & Customs practice in the Asia Pacific.

Discover more details here.

Some of the highlights of the episode:

  • The impact of Coronavirus on trade and global supply chain
  • Phase One trade deal China/US - does it solve anything?
  • Semiconductors - the next war zone and how it links to Huawei
  • The Galapagos effect 
  • The literal fight for techno talents
  • How effective is glocalization for global companies

Follow us on:
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Twitter: http://bit.ly/2WeulzX
Linkedin: http://bit.ly/2w9YSQX
Facebook: http://bit.ly/2HtryLd

Show Notes Transcript

Alex Capri is a Senior Fellow and Lecturer at the National University of Singapore Business School and Lecturer at Lee Kuan Yew School of Public Policy.

Alex was a former Partner and Regional Leader of KPMG’s International Trade & Customs practice in the Asia Pacific.

Discover more details here.

Some of the highlights of the episode:

  • The impact of Coronavirus on trade and global supply chain
  • Phase One trade deal China/US - does it solve anything?
  • Semiconductors - the next war zone and how it links to Huawei
  • The Galapagos effect 
  • The literal fight for techno talents
  • How effective is glocalization for global companies

Follow us on:
Instagram: http://bit.ly/2Wba8v7
Twitter: http://bit.ly/2WeulzX
Linkedin: http://bit.ly/2w9YSQX
Facebook: http://bit.ly/2HtryLd

Radu Palamariu:   0:00
this episode is brought to you by Amazon Logistics. The delivery service partner program is a new opportunity for business leaders who want to own and operate their own package delivery business. Get access to Amazon's logistics, training and technology, and start building a team of motivated drivers in your community to learn more about becoming an Amazon delivery service partner. Go to logistics that amazon dot com Hello and welcome to the leaders in supply chain podcast. I am your host. Rather problem. Are you managing director of Global? Our mission is to connect the supply chain ecosystem by bringing forward the most interesting leaders in the industry. And it's my pleasure to have with us today. Alex Capri Alex is a senior fellow and lecturer at the National University of Singapore Business folk, and also he is teaching of the leak. One new school of public policy he was a former partner and regional leader for KPMG is international trade and customs practice in Asia Pacific. He brings 20 years of experience in value chains, logistics and global trade management. Both there's an academic as well as a professional consultant and has advised many of the world's best known companies on cross board the projects in more than 40 countries. He also writes for a variety of publications, including Forbes, Asia and Nikki Asian Review, and is a frequent guest on global television and radio networks, including BBC, Bloomberg, CNBC and Channelnewsasia. Alex, thanks for taking the time. Happy to have you with us today. Good to

Alex Capri:   1:27
be here.

Radu Palamariu:   1:28
So maybe let's start by asking you to tell us a little bit about yourself about your story and how you ended up doing 40 years in global trade consulting and and, you know, consulting in general is a career.

Alex Capri:   1:43
Well, for me. Uh, the theme of globalization began very, very early in life. I grew up in nine different countries. My father was with the U. S State Department. He was a career diplomat, which meant that the family moved every couple of years. On average, eso we bounced around and so for me, I became very much acclimated to a global environment on eso. When it was time for me to go to school to go to College University, I was drawn, of course, to international affairs. International relations, which is what I studied. Political, economy, international political economy. And then I ended up. My first real job was with the Customs Service, with U. S. Customs doing work around free trade agreements and customs valuation and so forth. So it just it just basically took off from there.

Radu Palamariu:   2:42
Awesome. It's it's It's fascinating. I've had a few other speakers on the podcast, and it's interesting that there is seems to be a trend of people living in different parts of the world that end up eventually in supplies, you know, transportation and logistics or trade. So I think there's a common thread in there since, um, topic of the day, a topic of the moment as we're recording this, this podcast we are in the world is facing Corrine, a virus outbreak, one of the worst thing the last 20 years. I think after stars tell us a little bit, how do you see this virus is impact on trade, global supply chains and what's happening overall?

Alex Capri:   3:20
Well, I think the impact has been immediate. You know, we're already seeing the cancellation of non essential travel to Asia. I've been speaking with people at companies in the United States and Europe, Australia and the company's air already canceling travel s Oh, that's an immediate impact. That means that a lot of the the public events that were scheduled are being postponed. I pretty experienced that for events coming up later this month. So you know, the ripple effect of that, of course, is going to have an immediate impact on local economies. Regional economies. If businesses air actually shutting down our closing because of this, then obviously, you know, we're gonna have a very, very, very deep impact. So it remains to be seen how extensive this this impact is going to be. I know that the World Health Organization today declared this a public health emergency. So it's early days. But there clearly is and will be a financial impact on, you know, not only supply chains, but also financial markets, local economies, etcetera.

Radu Palamariu:   4:37
I was I was reading that from from a supply chain perspective, Obviously there's a lot of airlines that have canceled trips and flights altogether to China. Obviously, that will impact the cargo movements because effort is probably gonna be deeply impacted. And with that, the ports will be over crowded and the shipments out of China thing will be quite quite a bit delayed. So yeah, it's yeah, for now, in the global transience, the Chinese New Year is just finishing. But I think that there's still to be seen because it's usually a quiet period this week, letting next week onwards. It's gonna be very interesting toe to watch. How is gonna progress?

Alex Capri:   5:19
Absolutely. And and if you think about the high tech sector in particular, where most of that very, very high value, very small, lightweight items are flowing around the world multiple times in the value chains on. If you start seeing a constriction of air travel on air cargo, that's gonna have an immediate impact on global value chains in that regard, you

Radu Palamariu:   5:45
kind of putting the emphasis on trade. And we've seen a lot in 2019. Has bean endless debates and discussions, trade wars, trade discussions? Eventually, they concluded with the phase one trade deal between us and China. Tell us a little bit about your views on that On that deal, there's a lot of people that said It's a it's a good start, but there's, you know, some fundamental flaws also in the framework of the deal. How do you see that shaping the this year I'm trading journey.

Alex Capri:   6:18
I think the face one deal is more of a truce. It is. You know, it's a positive sign that that the two sides will continue talking and hopefully come up with a more substantive phase two, which will address, you know, the core issues which I'm I'm I'm skeptical of, by the way which which core issues being yeah, transfer subsidies, thio state owned enterprises and subsidies to special military civilian fusion initiatives and so forth by the Chinese government. The this is court their to their to their model to their state central model. So I just really don't see that changing, you know, substantively. But it is. I mean, it is on a very short term basis of positive. But the issue for this decade and beyond for the whole world regarding the US China relationship is that it is a It is a rivalry. It is a systemic power rivalry which is much more extensive than just trade and tariffs on. We're seeing this playing out, particularly in in what I would call techno nationalism. This focus by the Chinese government now increasingly the U. S and the West in general, of promoting their own interests when it comes to technology because it's directly linked to national security, to economic prosperity and even social stability. Right? So I think the techno nationalist component will manifest itself. Maur mawr in this in this bilateral relationship.

Radu Palamariu:   8:13
And I know that that you also recently probably very comprehensive report and we will share this with the listeners as well, because I think it's something that is of great value. I'd love to go a little bit deeper in this topic. Off on the on the rise of techno nationalists, industrial policies maybe. Do you have some examples? I think there's been a few, you know, case that is also China trying to acquire certain companies are especially the semiconductor industry. There's some pretty large connotations there.

Alex Capri:   8:43
Yeah, so you look, Chinese industrial policy has been has been a fixture of their system now for decades. Andi, if you look at how China, I would I would argue, despite despite the large body of economists and economic thinking that say that you know any kind of nationalist state centric, subsidy driven system is going to be less efficient, it's not gonna be transparent. It's gonna be corrupt, etcetera, etcetera. The law's a fair system will produce a much better result. The long run in general, I think that argument is true. But if you look at China, look at what they've been been doing in the last 15 years with high speed rail. Because of their policy, they've been able to attract topflight talent and intellectual property and investment on absorbed that they've been able to go abroad and acquire that technology. They've been able to develop human capital around that. So you've got the you got the high speed rail network. You've also got the Gedo basically the navigation satellite system that the Chinese developed because they didn't want to be dependent on the U. S. G. P s system, for example. And then, of course, you could take wall way, you know, while WAY is the world's largest telecommunications equipment company and you know, they very quietly carved out of Monopoly very famously now in the five G network area because everybody had essentially just outsourced everything to the point to where you know, they were able to scale very successfully, uh, invest enormously in research and development on dhe again. Wall Way has been a direct beneficiary of funding special subsidies from the Chinese government, particular when it comes to bidding for international contracts. If you flip that over on the other side and you look at what the West has been doing with industrial policy, we're in the early days because again, the lads a fair model, the so called Washington Consensus, where you basically government stays the hell out of the way on, you know, basically lets business do their thing. Um, that perception is is now starting to change when it comes to direct competition with China in a techno nationalist sphere. So you have, for example, the United States, the Trump Administration reaching out to Ericsson and Nokia and actually offering to pay them t subsidize them in a sense, to be able to fund their their activities so that they can compete on price level with wall way in bidding contracts and also pump money into their R and D s. So that's happening. You also have the the European Union. You know, you have very influential voices in the European Union and a threat to you arguing that the U. S and the you now need to start forming essentially a joint venture when it comes to setting standards in these industries of the future, whether it's five g, whether it's a surveillance technology, so we're going to see warm or of that. And I would also expect to see new alliances of companies forming sort of public private partnerships where governments will incentivize companies to begin to work together. Uh, that's what we are seeing that

Radu Palamariu:   12:29
and wanted to also pick your pick your brains a little bit in terms of what do you think China will do it as sustained efforts to move away or move away from a dependency on the American technology and in the American supply chain driven, um, from Semi Conan and microchips? What's what. Do you see that happening?

Alex Capri:   12:52
Yeah. So clearly wth e wa way scenario as we've seen it, you know, with us placing wall way on the restricted entity list, attempting to block thes the the implementation of wall way around the world has really brought into really stark high contrast the Chinese need to decouple from American technology. Thio wean itself off. Uh, it's it's dependence on on American technology and So this is This is what I would describe is the de Americanization of supply chains that we will see Wall Way and and other Chinese tech firms very, very aggressively, um, doing pursuing the strategy of the Americanization. And so again, this is going to lead to Maur restructuring of supply chains, second sourcing or attempts to second source things that were originally sourced from from American firms, or at least firms that had us export controls attached to their technology. So that, I think, certainly is gonna play out. Um, and that's that's gonna be significant because that means that American firms are going to, as I said earlier, are going to move operations and to try and circumvent those export controls because obviously they don't wanna have to lose market access. But we saw this play out. I mean, it was remarkable what wall way did with the P 30 mate of smartphone. There was there was a fair amount of US technology embedded in that phone, including the android operating system from Alphabet Google. And they managed to at least the claim is that they've essentially replaced all of that, you know, in a de Americanization process, which, by the way, ing impacts everybody in the supply chain, right, Because that means that other 1st 2nd 3rd tier suppliers, service providers are going to have to think about how they may end up having to realign themselves in these new ecosystems. Now they could do that with with with with smartphone technology with coming back to the semiconductor theme. Um, you know, the Chinese could be a decade plus away from being able to to produce critical semiconductor technology, perhaps even even further away, depending on how quickly the state of the art advances and the leaders were able to advance that

Radu Palamariu:   15:35
wanted also to ask you, you mentioned a very interesting point about the Galapagos syndrome and about ringfencing companies in your in your report maybe tell us a little bit about that in the context of what we just discussed,

Alex Capri:   15:48
right?  So when we were discussing how value chains are responding to these new techno nationalist pressures by ring fencing off essentially operating in in insulated environments because of non tariff measure and other other policies, what that does is it? It isolates, um, national or regional ecosystems in such a way where you think of the island archipelago of the Galapagos. They have a unique ecosystem that that evolved in its own certain way and wasn't able or doesn't doesn't adapt well to the introduction of invasive, so-called invasive outside species. Right, s o. If you if you replicate that kind of ecosystem in a technology environment, chances are you're going to get standards that are put in place for technology, whether it's telephone, five g standards or other types of standards that may be limited to that one region or that one area. That means that those companies that adopt those standards that dap those standards, um they're not gonna be well suited to compete globally where there might be more universal or more broad standards. I think the good example of that is, if you look a TTE Japan, you go back a few decades and you look at any sea which absolutely dominated the telephone market right in Japan. But then, when you when you had the for example, the adoption of the android operating system in smart phones around the world were basically that became the de facto operating system for smartphones, you had any see operating on a completely different standard. You don't see They went out of business, right? You don't see them anywhere. In fact, now the invasive species that came into Japan are these other international brands that are operating on this more universal standardized platform. So we could see the Galapagos syndrome playing out around the world in the tech sector as you get again, the techno nationalist pressures forcing different standards. We could very well see that in five G networks, for example, where you have, you know, Europe, the US perhaps adopting a particular standard for five G and then alway having their own standard. And you could have a block of countries, our markets that we end up going with the wall away standard. But again, you wouldn't have the whole world on the same standards. So that that again, I think that just steers us back into this direction of where I think we're going in the next decade. Plus, and that is globalization. As we discussed

Radu Palamariu:   18:44
and building upon the five G and the examples that you mentioned what's happening with Hallway and Nokia and Ericsson and different, different come countries coming together to help this dispute. It's also deeply connected to the semiconductor industry. It's also deeply connected to the I p side of of things. So I know you talked about it in your report. I think there were a couple of tried acquisitions by the Chinese government into some companies to acquire some of the side B. Maybe let's let's go a little bit different. That is

Alex Capri:   19:19
right. So So semiconductors are at the very, very heart of all the industries of the future. Everything requires a semiconductor, a microchip, if you will. Um, and the state of the art of those semiconductors are there now pushing up against the boundary of Moore's law. Right. So, you know, you're looking at seven Nana meter chips? Uh, no. One nanometer is a billionth of a meter just to put things into perspective, right? So the technology behind that is critical on, so it is invaluable. Whoever controls that technology is going to have the upper hand in this so called techno nationalist world s O. Of course, semiconductors are very, very important to to policymakers in Beijing, particularly since Beijing as you, as you saw from the from the report on the data in the report that, um, the U. S companies and non Chinese coming to us Cos In particular, South Korean companies absolutely dominate the semiconductor landscape. Chinese companies are multiple, multiple generations behind in terms of ability to produce and commercial quantities for this insatiable appetite within the Chinese market. It's the largest market in the world, and yet Chinese companies can't are producing just around or just below 5% of the microchips in the world. And they're not state of the art, basically. So it's an imperative, particularly for the for the Communist Party to be able to develop that industry as quickly as possible. So they had a very, very aggressive two pronged approach. Teoh making that happen. One is, as I mentioned earlier, it's it's attracting the investment. It's it's it's it's getting the the I P obviously the technology, the human capital to come to China and established presidents. But the other element of it is to go abroad and to try and acquire that technology or trying acquire ready made companies already, if possible, and what we've seen really starting in about 2015 is of really rapid, and, uh, it's sort of a ramping up if you will of blockage of those kinds of acquisitions. In other words, in the United States you have Citius, which is the committee that essentially reviews any attempts to acquire US sensitive industries. I e. Semiconductors. They're all being blocked. So essentially, even in Europe, we're seeing examples, you know, so way saw, For example, the the Germans. They blocked the anti ty hi group, which isn't a Chinese investment group with state back funding in their attempted by the Layfield Metal Spinning Company, which is a very, very high tech industrial, uh, spinning technology company. And that was on the grounds of national security. You know, if you look it in the semiconductor space, we had the Fairchild Semiconductor acquisition in 2016 that was blocked again. Chinese company I was about a $2.5 billion attempted acquisition. We had the late the Lattice Semiconductor in 2017. Another Chinese backed private equity firm, Canyon Bridge Capital Partners, attempt to divide latest semiconductor That was a $1.3 billion deal. Blocked stone cold. We had a Qualcomm in 2018 the attempted acquisition of Qualcomm by Singapore based Broadcom. Uh, you know, the Singapore based entity of Broadcom. I'm so, uh, Broadcom is, of course, American company. Right. So, um, you know, there's just not a lot of activity in that space anymore, and And I would expect any kind of attempt to block rather to acquire semiconductor technology. The future by Chinese interests will be blocked.

Radu Palamariu:   23:53
And based on this and based on the this increasing, I'd be linked Conflict and interests involved in the chips and semiconductor industries taking into account. You know, us, Taiwan, Germany, Korea, Japan. She produces main market. Ultimately is China. Um, how do you see things shaping up in the next 5 to 10 years? Given all this underlying national interests,

Alex Capri:   24:23
So the extensive global value chains that have that have taken essentially 20 to 30 years to develop in the semiconductor space are going to be carved up. We're going to see those value chains fragment, localize, regionalize under this, this banner of techno nationalism. So here's an example. Take TSMC, the Taiwanese foundry. This is a company that that produces a nen inordinate amount of the chips under contract to companies such as in video and also the wall way. Anyway, the U. S. Government has has been pressuring the Taiwanese government a cz well is putting pressure directly on TSMC to move operations and to actually build a plant in the United States to serve specifically US clients because of fears of Chinese espionage. Chinese influence in Taiwan on dhe. So, for example, the F 35 fighter jet actually uses microchips that are produced. Bye, TSMC. So at the same time you have, you have the Chinese Communist Party also putting pressure on TSMC to relocate production into the Chinese mainland. Um, this becomes a This is really gonna play out in the next 1235 years. And I think this is going to be dramatic because the United States has particular influence over over the semiconductor value chain, including TSMC, which produces the vast majority of the subcontracted chips in the world. I mean, it's a huge, huge disproportion amount that TSMC produces. Um, but the U. S still has the power to basically put a stranglehold on that value chain because the equipment needed to mass produce those chips are is largely US equipment. So you have applied materials. You have kayla 10 core. You have lam research that make this this, this manufacturing equipment and the tooling equipment that's needed. So there are multiple choke points in that value chain that the U. S could simply say, Look to this is to the Taiwanese, which is a what we call a schedule be country, meaning that a lot of the U. S. Control technology doesn't require a license to go to Taiwanese companies. If that were to change, if the United States again decided to to cut that off, they could conceivably basically shut down the supply of TSMC chips to wall way. Now, will there be collateral damage? Absolutely. You can start with the American firms that are, in fact, subcontracting TSMC, uh, that, you know, if if it really went nuclear than they would be impacted, but the U. S could selectively say, Look, we will not issue you. We will make this a license symbol transaction if you want to sell to Wall way. And if you do sell the what way we will could conceivably put you on the on the restricted entity list so it could get really, really complicated on, I think, to avoid those kinds of situations we're going to actually see the ring fencing off of production again in local markets.

Radu Palamariu:   28:26
That's fascinating, because we've seen a bit of a glimpse into into what can happen when when Google and the Android took away the Andre system from wall way, when they announced that the initial sanctions I can remember when it was a couple of months ago and then what we had to, it was kind of a forced move that they had to launch their own harmony operating system everything. Now they're trying to more or less put it on all their devices. But it's not as easy to do that from basically their years behind developing the chips a TTE the same time. All these companies, which are mostly American and Taiwanese, the size of their marketing, China's huge. So if they just cut off the supplies to China is going to hurt their business. So it's absolutely, um,

Alex Capri:   29:15
that's the collateral damage I was referring to, and it would be massive. I mean, if you look at a company like like like like a Broadcom, or you look at, you know, other other companies in via Globalfoundries. Obviously, companies like Intel now Intel is is a vertically integrated company, so they they would be able to perhaps absorb this type of scenario a little bit more easily. But all of these, you know, all of these companies have a major business that they're doing with in China. On dso t have that kind of value chain or those value chains disrupted is absolutely going to create, uh, gonna create, have it basically, you know, they're gonna lose market share on and really a scenario like that where you had the U. S. Government really using the nuclear option, if you will, that would have serious ramifications just on the global economy. I mean, really would be profound, because, remember, you know, from everything from smartphones to television sets to the whole array of other kinds of gadgets and appliances, they all require microchips. So if that essential supply chain, it's been like oil, right? If you cut off the oil supply, what that does to the global economy, I mean the damage inflicted on the global economy through a a very poorly thought out, uh, kind of tech war, if you will, through the indiscriminate use of sanctions and putting putting people on the so called especially designated national's list, which means that basically US companies and U. S citizens cannot trade with those entities, period. That could have just catastrophic effects on the tech landscape and also, um, global economy.

Radu Palamariu:   31:26
How about from a skill set perspective and from a human capital perspective? Because also, what has happened in this in this year's, I guess Also, China tried to develop Pinto, attract and develop scientists and engineers and the like. You were mentioning that the pool of off brainpower to take them forward. I would. How do you see this shaping up in terms of the future? Because there's also gonna be a you know, I guess certain countries, maybe us we try to limit or try to do something. Also in that respect,

Alex Capri:   31:57
yeah, again, here we have an example of, um, collaborative networks that have developed over decades where there's been the relatively free flow of ideas. Human capital. Obviously you've had these partnerships that have involved, you know, the world's top universities. He's big companies, government initiatives, etcetera. Um, we're now as part of this in this new landscape. We're now looking at a situation where wth e free flow of human capital or the exchange of ideas. It could also be severely curtailed or limited sober. So, you know, a controlled technology or a so called deemed export of that technology could could it actually involve an email being sent to a foreign national that's restricted? Or a foreign company that's restricted S. O that could really, really put, uh, put quite a crimp in some of these research and development projects that are going on. Who can participate eyes there. Is there an academic that that is, perhaps, you know, potentially on an SD enlist or something? What does that do to the whole program? If there's a violation, will the whole program gets shut down? The potentially university gets, you know, is violating a. An international export control law could be penalized, etcetera. So, um, that means that we're also going to see this fracturing er of these value chains when it comes to human capital. So we'll have the development of these pools of talent, and there will be competition. Get that talent and let's go back to Taiwan. So Taiwan, of course, has, as I mentioned earlier, TSMC, they have u M c et cetera. These air these are companies that have a lot of engineers, you know, very, very well educated, sort of leading edge engineer's um, the university system in Taiwan is also producing. They're doing a pretty good job producing engineers. Ah, lot of them have also studied abroad. They go back to Taiwan now, Chinese semiconductor firms sm. I see, for example, of course, cos like high silicon, which is which is which is owned by qual away. They are offering huge amounts of money and incentives to trying to track this kind of talent over. And this has become a national security issue for the Taiwanese government. They actually have in in, you know, in the offices of TSMC on and the other, you know, high profile tech companies in Taiwan. The Taiwanese government actually has offices with officials sitting in those offices, insuring on a day to day basis that national security secrets or not being pilfered or leaked. Uh, from those from from those companies. Uh, so you know, we will just see more of that on again. In cases where either the technology or even the human capital is deemed to be highly sensitive, we will see attempts to remove those those elements and and ringfence them somewhere else. So again, all of this is gonna profoundly impact global value chains

Radu Palamariu:   35:39
and thinking from thinking from the business side. If you know, if we think from a CEO perspective from a chief supply chain office of perspective, with all this uncertainty, is all this trade wars and trade discussions and tensions between the superpowers? What type of advice you would give to them? What should they be thinking about? How can they be preparing if I told you for such things?

Alex Capri:   36:07
So I would say that prepare to become a local company meeting you might. You might be a global company or a multinational company, but you will have to focus more and more on local environments, local operations, local supply chains on that isn't the most efficient of scenarios. That means that some of the economies of scale that that your company may have enjoyed AII in terms of the free movement of goods, people, ideas and increasingly data. That's something we haven't really talked about yet. But that's another element that is increasingly facing impediments and increasingly having to deal with local regulations and local environments. Overall, what it means is that, um that companies need to become more adept at becoming effective global players by going local. In other words, what what term that's been used is localization, right? A global company that is increasingly local in more and more locations.

Radu Palamariu:   37:19
That is interesting that way. We've had all this years of globalization where the reverse was happening right there where? I mean, I don't know if the reverse, but a lot of a lot of companies were running all these global supply chains, and they tried to either have regional points or even sometimes they were. They were highly centralizing in a couple of locations, and now it kind of turns on its head that model and forced forces them to rethink it.

Alex Capri:   37:46
Yeah, Part of this localization process means that companies are going to have to restructure their supply chains and that restructuring if we stay with this example of technology and even controlled technologies, sensitive technologies, industries of the future, right, which increasingly going to require licenses and other and will be subject other kinds of controls. One of the things that we see playing out in the semiconductor field, for example, but other tech sectors as well is cos we're restructuring their value. Add operations. In other words, they're moving things around so that they can, um, they can meet certain thresholds of what we call de minimus, for example. So in the case of us, US has de minimus levels of, for example, 25% or 10% of certain types of US technology, meaning when you, when you manufacture something abroad that has US technology in it, um, if it exceeds the 25% level or the 10% level depending on it is it's going to require a license, depending on who you send it to who the buyer is, where it's going. That's quite an onerous thing to have to manage, because you have to have full traceability in your supply chain. You have to know where the parts came from, what their values were, et cetera. And it also, of course, puts the company in a position where, if they, you know, need to apply for a license, it could be rejected. Licenses, to be honest, are not rejected very often, but it's still control. It ups the level of uncertainty, and it also adds costs because you need to have the resources to to effect, you know, the traceability and the transparency that you need in your supply chain. And that's not easy to do when you've got thousands and thousands of parts and components, many of them moving around multiple times across borders, right, that's it. That's a big responsibility. So how do you  do you mitigate a za company? Well, what you do is you try to get below those de minimisHowlevels so that they're no longer is a license that's required. So that means, you know, ironically, a lot of these export controls were in terms of, you know, the rational by policy makers were set up to protect us industry. But in fact, what's happening is they're having to move abroad because they given a choice between losing market share hard, hard earned market share, Uh, and, uh, and the or complying with this, this regulation staying, you know, keeping operations exactly as they were and potentially losing that business in the long term. Anyway, they obviously want to protect their market share. So they're offshoring. They're moving stuff around. They're moving stuff out of the U. S. In terms of these operations. So that's another component of localization, right? The restructuring of these value chains in such a way to be able to circumvent legally, totally, legally, right to be able to circumvent something's very onerous requirements that we're seeing in these non tariff measures such as export control.

Radu Palamariu:   41:18
This this question just popped into my mind. Would you have from more from the advisory and consulting work that you do? Would you have an example of some case studies of companies that you've seen in recent period 12 to 24 months, I guess 12 months into intensified that have done this fairly well, Like from moving this or adopting this global type of mindset.

Alex Capri:   41:40
Well, again, you know, this is going to depend on how capital intensive this'd activity is. But, you know, there are certainly a lot of examples of companies that are doing. For example, in some cases they're doing testing some cases they're doing, uh, you know, some other work, perhaps even in the the combination of of components and sub components that aren't necessarily that complex. But there are labor costs involved. There are overhead costs involved that you know, when you factor in these differences, either their costs or lesser there Maur depending what they're what they're trying to achieve. That's a That's a fairly common activity, right? In terms of Can you shift something from one country to the next and attribute the labor to that country as opposed to, you know, country is opposed. Country B uh, and or, you know, certain assembly operations. Fairly calm.

Radu Palamariu:   42:44
Alex has been fascinating. Thanks for sharing things for the for the case study is very interesting to see how this this all plays out. Thanks for joining us and and as share that way we'll make we'll make available with our audience. The report and I do strongly advise and recommended to everybody to read because it's quite it's quite insightful. Thank you. Once again,

Alex Capri:   43:07
thank you very much.

Radu Palamariu:   43:08
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